This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Delivered on:

25 May 2011 (Transcript of the speech, exactly as it was delivered)

My Lord Mayor, ladies and gentleman. Thank you for that kind introduction and the opportunity to speak to you today. I too want the City to be the City of choice for the world to do business. Let me start by being clear that this Government is resolutely committed and support the City as the first choice for the world to do business.

It is just over twelve months since the Government came to office. I look back on the past year and I am struck by the dramatic shifts in the balance of economic and political power that we are seeing. The shift of relative economic and political power east and south as the economies not just of China and India, but also Latin America, Turkey and Indonesia expand and grow. And in recent months, the Arab world has been irrevocably changed by the spread of reform movements that began in Tunisia and then swept across North Africa and the Middle East. I am proud to serve in a Government that has been bold and firm in facing these challenges, even at a time of great financial constraints.

Just two weeks ago the Foreign Secretary updated the House on the strategic decision we have taken to expand our network of embassies overseas, so that our diplomatic presence maps onto a changing landscape of power, and we have also led from the front in supporting the opening up of societies in the Arab world. As the Foreign Secretary made clear in his speech here earlier this month, we are pursuing a distinctive British foreign policy that looks, in his words, ‘fearlessly at the world as it is now, but also as it is likely to be in decades to come’. It is a foreign policy guided by three clear priorities: providing Britain’s security, delivering Britain’s prosperity and supporting our citizens overseas.

As Minister for Europe I am keenly aware that, in the pursuit of these priorities, we need to be as bold and energetic in our dealings with our partners in the European Union and our other European neighbours as we are in engaging with the changing world surrounding our continent. We in Europe need, as a minimum, to keep pace with the world around us. This is particularly the case in economic terms. And why I want to speak here this morning - because this government understands that financial services are hugely important to the economy of the UK, so as a Government we must work hard to ensure the relationship between the City of London and the members and institutions of the European Union is mutually beneficial; and that the City gets what it needs from the EU in order to remain an engine for British, and for European, prosperity.

Of course, the central importance of the City to British foreign policy is not new. When I come to Mansion House I am struck not only by this magnificent building but am also reminded of the rich history of the City as a whole. In particular, the fundamental role that a nascent financial services industry played in Britain’s relations with our European neighbours. For centuries there has been a tradition of finance and government working together in the national interest. Indeed, our nation’s history would be markedly different if one of the founders of investment banking, Nathan Rothschild, had not moved from Frankfurt to London, via Manchester, at the turn of the 19th century to deal in government securities. Because it was he, along with his four brothers working in the financial centres right across Europe, who undertook crucial gold bullion operations to finance Wellington’s army as it battled Napoleon across Europe and defeated his armies decisively at Waterloo. Thus paving the way for the close entente between the British and French Governments today. And we now live in a world with London as an important stop on a French Presidential campaign due to the number of French voters working here, many in the City.

Nathan’s son, Lionel, went on to be elected in 1858 by the City of London as the first Jewish MP to take his seat in the House of Commons. And Lionel’s son, Nathan Mayer Rothschild, sat for what is now my constituency of Aylesbury from 1865 to 1888, before becoming the first Jewish Member of the House of Lords. And today the family’s legacy remains in the great houses of Waddesdon, Mentmore, Halton and Tring and it’s said that the brothers and cousins used to send each other news of stock exchange movements by heliograph flashing across the vales of Aylesbury from one mansion to another.

Now today, times have changed. Heliograph has been replaced by email and our relations with other European countries are, thankfully, no longer decided on the battlefield. But while the means of settling competing national interests have changed, the significance of the City has not. And so today I want to make the case for a renewed cooperation between government and the financial services industry to produce the best results in Brussels.

And it is important we do this now because of the amount of financial services regulation being considered by the European Union this year. We need to work together to ensure this legislation delivers what we need. And what the City needs to continue its role as an engine of prosperity. I hope that my coming to the historic heart of the City this morning demonstrates the extent to which all of government is geared towards working with business and industry to restore the British economy. The Foreign Office, and our network of embassies overseas, is committed to playing our full part in this effort.

There is no doubting the importance of the financial services industry to the British economy. As you all know, its 10% share of Britain’s GDP is higher than any other G20 economy; it employs over a million people; and it generates billions of pounds worth of trade surplus - £36bn in 2010. The City of London, and the dense concentration of financial expertise residing within it, is a magnetic attraction now, just as it was 200 years ago when the Rothschilds, Schroders, Huths and Brandts were drawn to do business here.

The government’s determination to rebuild the British economy will depend to a huge extent on a thriving City to help drive that growth. But as we recover from the biggest banking crisis in the history of our country, we must learn the lessons that will prevent a disastrous repeat of 2008. We welcome the publication last month of the Independent Commission on Banking’s interim report, which outlined proposals for banking reform. I know that my colleagues at the Treasury will consider the Commission’s findings carefully. Whatever decisions are taken here in Britain, it is important we recognise that three years on from the financial crisis there is broad international support for regulatory reform both within the European Union, and at the G20 level. There can be no question of things simply returning, somehow, to the way they were for the financial services sector before 2008. The challenge for us is how to work with the appetite for regulatory reform in a way that helps, not harms, us.

Since the crisis, we have rightly taken a leading role in various multilateral fora and international bodies dealing with regulatory reform like the Financial Stability Board and the Basle Committee. Our work on capital, liquidity, and crisis management tools has steered the international debate on these issues. As the European Union now considers a broad range of proposals over the next 12 months we need to maintain that level of engagement. We must not become complacent, or even jaded, by the reform agenda. But continue to engage constructively, so as not to fuel the arguments of our detractors who are very quick to claim that the UK prefers to compete only through a light touch regulatory environment and therefore isn’t worth listening to.

It is essential to our interests that we try to shape the debate by putting forward our ideas for evidence-based reforms that do not place innovation in a straitjacket but deliver what we need: namely a stable regulatory environment that maintains the global competitiveness of Europe as a location for financial services business.

Our starting point is to remind our European partners that the City of London is, as the Lord Mayor has said, a financial services centre for the whole continent. It not only hosts the European headquarters of all British and most American and Asia Pacific banks, but European firms such as Societe Generale, BNP Paribas and Deutsche Bank have operations in the City employing literally thousands of people. There are numerous large fund managers in the UK like Blackrock, Schroders and Henderson that have billions of Euros under management for major European public and private sector entities. French pensioners - and we need to make this case strongly in Paris - through their pension funds benefit from a strong, successful and profitable City. And the financial services on offer in London facilitate trade across the world. Whether it is through foreign exchange transactions that enable exporters to protect themselves against currency fluctuations or hedging on oil prices to help transport companies cope with unstable energy costs.

Every day the City helps real businesses in the real economy right across Europe to provide vital services to citizens. That can be arranging the financing to build roads in Spain, power stations in Hungary or setting up new factories in Poland - it’s the City that is providing the capital and expertise to make it happen. This is especially important as countries in the Eurozone struggle with debt problems. The UK is, of course, not in the Euro and nor will we be joining. But it is in our interests that the Eurozone - with which we do 40% of our trade - is strong and stable.

The Coalition Government has made driving up exports and deepening inward investment central to achieving a sustainable economic recovery in our country. The health of the Single Market underpins those efforts: for example, no less than half of the overall stock of Foreign Direct Investment to the UK now comes from elsewhere in the European Union and trade with the European Union amounts to almost 1/3 of our annual GDP. So we must support and strengthen the Single Market, widening its remit to focus on the digital economy, on energy, on low carbon development and on the much needed further liberalisation of the services sector. These are matters which the Prime Minister has made priorities for the Government in our approach to the Single Market.

The government set out its clear ideas about how we can secure sustainable long term growth in Europe in the “Let’s Choose Growth” pamphlet published last month. They are based around four principles: complete the single market; reduce the burdens on businesses; support innovation; and do all that we can to free up trade, in particular by concluding Doha. The UK is not the only country supporting this approach. These principles for generating growth were agreed in a joint letter sent to EU Commission President Barroso and Council President van Rompuy by David Cameron and 8 fellow European Prime Ministers. We believe the City has a major part to play in helping Europe’s businesses exploit the opportunities these measures would create. That is why I’m so pleased to see the London Stock Exchange working with the Commission, through the Financial Future Forum, to find new ways to help small companies to access funding. This sort of collaboration is exactly what the City should be doing more of, and which will help to sell the City across the EU.

There are so many sectors where the London’s financial services expertise brings wide benefits for Europe. For example, the City is key to delivering the EU’s main policy for climate change. London is the global hub of the international carbon market and the largest carbon marketplace in Europe. More than 90 global businesses are based here, accounting for 81% of all global carbon trading. And in 2008 more than £19bn was invested in global renewable projects and companies by London-based banks.

Through the work of UKTI and this government’s increased emphasis on commercial diplomacy we are ramping up our contact with other EU member states to promote the work of the City. We should be quite unabashed in publicising the many examples of where financial services from London have brought benefits to all EU members. And we must be relentless in dispelling the myth of Anglo-Saxon isolationism and a default laissez-faire approach to regulation.

Schemes like the series of British Banking Association seminars last autumn, which were organised with UK Trade and Investment, do a tremendous amount to convince our European neighbours that we are serious and constructive about regulatory reform.

And, of course, the government worked closely with the Lord Mayor on the two successful visits that he mentioned, to Hungary last year and Poland last week, where our embassy arranged for you to meet Deputy PM Pawlak, Deputy Finance Minister Dominik and the Deputy Governor of the National Bank of Poland. That is a good example of government and industry working together to deliver the message that the City of London, and by extension the United Kingdom, stand ready to help the Polish Presidency to deliver on the financial services agenda on areas that will bring real benefits to the European economy

The more we use concrete examples to demonstrate the net gains for Europe of a thriving City of London, the more powerful our voice becomes in the debate in Brussels and in other European capitals. And this is an area where, let me be frank, the City can really help itself: by improving the way that it lobbies other Members States and in Brussels.

When I visit European capitals I regularly make the case for the City with my opposite numbers. George Osborne and Mark Hoban do the same. Often they will agree with me that the City provides huge benefits to the UK economy but I have to work to remind them of the benefits that it brings to their countries as well. So I would urge you to do as much as you can to promote your work. Our Embassies across Europe and UK Trade and Investment are there to help you identify the best ways to do this - who you should be talking with to explain the importance of the City to the prosperity of their citizens. We should also be thinking of other ways we can get this message in to other governments - they will carry more weight, for example, if you can get the businesses in other Member States who rely themselves on the funding and expertise from the City to make the case directly to their own governments as to why financial services and the City should be regulated, but in a thoughtful and careful way.

We can also get better at lobbying in Brussels. First of all, only the Commission can propose European Union legislation, so there is no substitute for making your case early to the Commission. Experience has shown that, for both government and industry, early engagement does pay off. The Chancellor, like other Finance Ministers, speaks to Commissioner Barnier regularly to ensure the Commission is pursuing a growth agenda and is fully aware of the impact of its proposals on all sectors of the economy.

Getting in early with the Commission provides the best opportunity to exert the greatest influence on EU proposals. The European Parliament too now has a much greater stake in the European legislative process. The Lisbon Treaty gave the Parliament a greater voice and it is becoming increasingly assertive in using it. The way the City gets its messages across to the European Parliament should adapt to reflect the Parliament’s increased role. They too are another audience to which the City should be explaining its role, how it creates prosperity for all of Europe’s citizens which inappropriate regulation would put at risk. So I encourage you to keep working closely not just with influential British MEPs such as Malcolm Harbour, Sharon Bowles and Vicky Ford, but with influential MEPs of all nationalities and all political groups.

Second, when it comes to negotiations, in order to be credible we should avoid, wherever possible, contradictory campaigning from government and industry on financial services regulation. As I have said earlier, we must not provide ammunition to those who do not believe the UK to be a sincere partner for strengthening banking regulations and suspect we are set on weakening the regulatory framework wherever possible.

We support the Basle III agreement and we want to see it fully implemented. To go back on what was agreed at Basle and at the G20 would create damaging opportunities for global regulatory arbitrage that will only harm us all in the long term. That is why the government is determined to resist other member states efforts’ to water down the Capital Requirements Directive which will implement Basle III. This is the most important of the pieces of banking legislation the EU is considering at the moment and we will be pushing for the highest possible standards across the board.

It is not in our interests to look across the board at the 30 or so forthcoming EU financial services dossiers and consider which ones to derogate from. Instead, we need to engage in the debate, consider the evidence that regulation is needed and look carefully at the impact of regulation in terms of costs and benefits. Our approach should to be to seek the best regulation, not the least regulation.

That is the approach that I believe will secure the results we need. Indeed it is the approach we took towards the Alternative Investment Fund Manager’s directive, where our lobbying on the passport successfully reversed the Council position.

So we need to think strategically and lobby with coherent messages from government and industry. I echo the Lord Mayor in welcoming industry’s efforts to better coordinate engagement with Brussels through the International Regulatory Steering Group. It is a step in the right direction and I hope that we can build on this initiative and together deliver compelling arguments for the right regulatory framework.

Both Government and the City agree that a successful financial services industry in London is in all of our interests. We want London to remain the best place to do business, so that it continues to contribute to growth in the British economy and in the wider European economy of which we are a part. In the upcoming months, as the European Union considers a raft of financial services regulations, the challenge for all of us is to ensure that we get what we need from these reforms. As I have said, this will require commitment to the regulatory agenda, a coordinated, proactive approach to our lobbying, and determined efforts to promote evidence-based reforms aimed at providing stability and enabling prosperity. By engaging on these terms, I firmly believe we can ensure future economic success for companies, for the country and for Europe as a whole.

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